Just like a borrower must be approved for a loan, a condo project must be approved as well. When a lender makes a loan that is secured by a condo project, the lender will want to make sure that the project is capably managed and the project is not experiencing litigation or other defects that may affect the marketability or viability of the condo project.
A lender will review several documents to verify that a project is acceptable. Depending on the loan to value (LTV) of the mortgage transaction, the level of documentation may vary. However, there are certain items that will always be required. Among these are a copy of the condo project master insurance policy and verification from the project that it is not subject to litigation.
The master insurance policy covers the common areas of the project and must maintain a minimum of $1,000,000 in general liability. There must also be provisions for Fidelity Bond (sometimes referred to as either E&O or a “crime” policy). If the subject project is involved in litigation, either as a plaintiff or defendant, then the project may not be an acceptable project.
Depending on the nature of the subject transaction, other considerations may be involved when reviewing a condo project. Items such as occupancy, concentration of ownership, and financial stability of the project may be considered with the review.
For more information and requirements, check with your Googain Loan Officer.